Saturday, May 29, 2010

Open Forum

NEW YORK (CNNMoney.com) -- As economic fears drive gold prices to new highs, the creator of a gold-dispensing ATM is attracting attention around the globe.

Germany-based GOLD to go, which is currently churning out 50 gold machines a month to meet a recent jump in demand, launched its first ATM in Abu Dhabi's Emirates Palace Hotel earlier this month and opened its second in Germany last week.

The golden ATM's next destinations are the Bergamo Airport in Milan, Italy, all major airports in Malaysia, one of Russia's biggest banks and an undetermined location in Turkey.

By making gold investing as easy as buying a candy bar from a vending machine, GOLD to go hopes to attract average buyers to the gold market.

"We are going to make gold public with these machines," said Thomas Geissler, CEO of Ex Oriente Lux AG, which owns GOLD to go. "The prices are so easy to control that we're going to de-mystify gold and make it easier for anyone to buy it."

[...]

Jon Nadler, senior analyst at Kitco Metals [said] that he would be surprised if investors bought into the new invention ... "I would like to see that same machine... spit out cash," said Nadler.

93 comments:

Given the Gulf oil spill and increased rhetoric re another Middle East war, how might this affect the gold/oil agreement?

Perhaps the Middle East oil wars were in response to the breaking of the system that Another talked about back in 1997? (something must have been done, as the dollar system is still alive, just).

Are these grabs for oil by America a response to the foreseen breaking of the system and how might the cessation of off shore drilling by the USA due to the oil spill affect geopolitics? Is a war more or less likely, due to its effect on gold?

We cannot judge/respond to FOFOA's material based on "who he is" we have to approach the work on its own merits.

Some scientists argue that a comparable strategy should be adopted in the peer review process of scientific papers ie. the review should be "blind" so that the prestige of the author and/or personal relationships don't cloud a reviewer's judgment.

Tyrone: There is a hint from someone who posts here a lot some time ago in Comments if you want to find out and appreciate such info. :o) I reccomend read those as well, they gave me a lot to think about.

costata: full anonymous peer-review will revolutionise science. Mind you, it is already one-way-anonymous: when you submit a paper to a (peer-reviewed) journal, the reviewers are anonymous to you. But it is not the other way around, they know who you and your coworkers are.

However, sometimes you just simply know who commented on your work, by style and choice of areas where the criticism is concentrated. This is especially true if the scientific (sub)field of the work is very narrow.

The gold above ground increase since 1933 is about 3.5 fold: http://www.goldsheetlinks.com/production2.htm

So assuming the gold price was correct in 1933 at the time of the revaluation:

35$*285/3.5 should give the current fair price for gold. That would be 2850$.

Now tell me where I have gone wrong. This takes account of the increase in the money supply from the last time gold was convertible 1:1 for the US Dollar so there is no reason to assume gold should be worth more.

I know that gold bulls are saying if we revalue gold by a larger margin debts could be settled, but what does that have to do with the true price of gold? In the end that must be decided by currency in circulation, supply and demand. There is no reason that gold in storage at central bank should be enough to wipe out debts, no matter how much governments wish it to be so.

Ok, the demand for gold might be different in a panic but that would be a short term event. We are talking about a one time revaluation of gold here. And yes broad money is probably a higher multiple of narrow money that it was in the 30s because of the credit boom, so we could argue that the price could be higher but you can see the ball park figure. Please, anyone, do you know where to get data on broad money growth since the 30s?

I think the discrepancy between the price above and the mooted 50k$ to 100k$ an ounce is that base money does NOT represent all assets. Broad money does. As gold would be base money it would be then multiplied up by a factor of at least 10 by the banks and that money would in fact represent all assets.

So this is a bottom up approach. If it were done with broad money growth since the 30s it would give a better result. Top down gives a much higher figure. You decide which is right :)

EU: Online gold shops - More and more investment gold bars are not available, same with coins of some sizes. I checked few and each shop has few items where there is "arrival unknown". E.g. Tavex which operates in Sweened, Finland, Bulgaria, Estonia, Latvia. Others in Germany, Czech rep, Slovakia - same story.So vending machine is ok but I wander how long they will work :o) Premiums rise like never before.

Investors scramble to buy gold coinsBy Javier Blas and Vanessa HoulderPublished: May 29 2010 03:00 | Last updated: May 29 2010 03:00British investors are scrambling to buy sovereigns and Britannia gold coins in an attempt to use a tax loophole to avoid paying more capital gains tax.

Mark O'Byrne, of Gold Core, a London-based gold coins and small bars dealer, said it was selling sovereigns and Britannias "in the thousands".

"This week we sold more than in any other one-week period," he said. "The vast majority of the buying is related to CGT."

The activity comes as the government plans to raise CGT for items such as second homes and shares to rates "similar or close to those applied to income", suggesting a rise from 18 per cent now to nearer 40 or 50 per cent.

UK-minted bullion coins are exempt from CGT, as they are considered legal tender. Some investors are choosing to buy gold coins instead of other assets that would incur CGT.

Revenue & Customs says "sovereigns minted in 1837 and later years and Britannia gold coins are currency but, like all sterling currency, are exempt". Coins that are currency but not sterling, such as South African krugerrands, are subject to CGT, the Revenue says.

miked, I have wondered the same thing. FOFOA says such simple calculations aren't meaningful. I can't help wondering why gold is so expensive right now even though we have full money in the world. When all of that 100's of trillions of dollars is facing collapse, and everyone realizes that they will soon lose it all if they don't preserve it by converting it into something which will survive the crash (which is the very limited amount of physical gold available), I have a feeling it will more than double or triple.

What else can the existing money funnel into? Other hard assets like jewels, works of art and land. I am wondering how this will affect the price of real estate because generally with economic contraction and higher interest rates real estate crashes, but this is only when local currencies crash. When every single currency in the world seems likely to crash, I suspect real estate may go up in value quite a bit, but I am no expert. This is because there is like 10 times more money out there than the hard assets it represents. Therefore, all hard assets should appreciate won't they? Like in a game of musical chairs, the chairs are worthless while you are standing, until the music stops and you actually need one, then it becomes quite valuable.

Since that time the gold price was fixed in one way or another by Govt decree. Post 1971 the price was fixed by manipulation. Any calculation of a free market price for gold based on these values will give a false result.

This approach also ignores much of the debt that has been created. It fails to capture the pre-committed Govt and Corp expenditures eg. Pensions, Medical programs etc.

It also completely ignores the fact that the banking system creates money ie. loans create deposits under the Basel II rules. The big mistake that some of the Austrian economists make is that they still think that we operate under a fractional reserve banking system based on deposits. We don't. It is a NO reserve system.

The volume of Govt issued "money" is trivial in comparison to the amount of fiduciary media (Mises) or money equivalents. As a mental excercise consider this: how does a $5,000 undrawn credit limit on a credit card differ from $5,000 in cash in terms of purchasing power?

This so-called GFC isn't a liquidity crisis it is a SOLVENCY crisis. The pool of debt is so large it cannot be settled (repaid) out of our collective "cash flow".

There are not enough "free", "liquid" planetary assets left to monetise as collateral for the outstanding debts except for TWO - the total human labour productivity for the next several generations or gold.

2. Fiat currency

Any price of gold expressed in a fiat currency is likely to be unreliable because the currency has no intrinsic worth. That is the core reason for the post 1971 US$-Gold-Oil deal. It made the US$ a defacto oil-backed currency, redeemable in oil, while allowing the Saudis to accumulate their oil profits (NOT revenues) in gold. For the Saudis the "gold window" never closed.

3. Gold to whatever ratios

Most calculations based on ratios to commodities ignore monetary history. They fail to take into account the fundamental reasons that gold evolved into money. IMO that is one of the main reasons why A/FOA spent so much time discussing gold's place in monetary history.

To further confuse the issue, these ratios are mediated through fiat currencies. It's not a direct exchange as in barter.

If you review FOFOA's archives you will find that his figures for the free market price of gold are based on probability analysis.

To arrive at the maximum potential current market value for gold you need to focus on the debt settlement function of gold. In order for gold to settle all of the outstanding debt the market value has to rise to the sum total of the debt LESS any debt that is written off.

Just to make life interesting. Some people would argue that you also need to deduct the value of all hard assets from any calculation in order to derive the final store of value price of gold.

Though I am heavily invested in gold and have been reading this blog for some time now, I still have difficulty in comprehending how I will convert my holdings to other items (real estate, vehicles, necessities, etc...). Will I be using the dollar for this transaction or will the physical be directly exchanged through barter? Has FOFOA addressed this? If so, please point me to the relevant article/comment.

Also, I noticed in Armstrong's latest missive he is calling for a bull market in stocks and the USD (whether for short term or not is open in my mind) and that there will be no Depression. Hmmm... Thoughts?

" If I was an ATM full of gold and someone tried to exchange currency for my gold I would spit out the cash too"Good one, Costata. LOL I just don't understand Nadler. He's just plain hostile sometimes to his own customer base. Can anyone think of anyone in any industry that mocks his own customer base regularly and talks down his product? Seriously, can you imagine him working to sell anything else? Maybe he can go work for BP and tell us all how lofty the price of oil is and we're all crazy for wanting to take physical delivery of gasoline to fuel our cars. He'd have us buy nothing but paper gasoline. Which would help avoid that messy oil spill. Can't spill it if you aren't driling it.

Anderew, if you'll allow me, when you want to exchange your gold holdings for something else, it depends on the circumstances. Right now, you'd sell for cash then spend the cash. If the dollar is in a death spiral, I don't think you'd want to sell it or trade it until things settle. But under a crisis situation, I imagine that plenty of people would barter for your gold. At some point currency will stabilize (probably in the form of a new currency), then you'd be back to selling for whatever new currency and purchasing with said currency. No matter what happens, you'll always be able to find a buyer.

Just an FYI, did anyone catch the US mint's gold pricing this week? The pricing policy is that it is supposed to change weekly based on the prior week's avg LBMA price. This past week, the price should have dropped but they left it unchanged. http://mintnewsblog.blogspot.com/2010/05/gold-coin-prices-will-not-be-reduced.html

I guess the new policy is that we can't benefit from a quick take down in price if it happens during options expiration week.

Most nations run gold coin in parallel tracks. I.e. the 'coins' as minted are legal tender at face value. I the USofA you will find this in Title 31. In the European Nations you can back track from the websites of their mints. So the 'Philharmonic' is 'a legal method of payment', enumerated in Euros or Shillings. The Krona, are "betalningsmedel". Now why would someone want to do that? Why would you want to have laws on the books, where the payment terms can be made fungible. One "Fifty dollar item" counts the same as the next "fifty dollar item", and together they sum to a hundred. Or to make things even more complicated. On the website for the Swedish Riksbank, the Venn diagrams don't quite work out, except they do. Sometimes they say, sometimes they don't say. So "giltigt betalningsmedel" to this day includes the gold coins in the "Oscar" minting.Now who would have an interest in delivering value for a contract according to "face" on the items tendered?

I'll try to combine your enjoyment of 'discounts' on carpentry, for payment in 'money', and that which is otherwise fully selfevident.

When you do receive payment, in any country, in face or legal tender (or any other legal tender scrip), they all sum to an amount. Supposedly that would be the amount of interest, if it could be contended that the 'money' actually was put into circulation, and you didn't subsequently withdraw it from circulation.

I have been reading FOFOA for some time and have gone through the USA gold pages.

Lets say I am a gold/silver buyer and trader.

I like to look at any future pitfalls when I make a trade, especially if I want to enlarge my investments.

What would happen if governments restructured debt? Would this not strengthen all currencies?

If the current price does not reflect the BIS bulk price, then why would it in the future?

I guess gold has it's true price as Miked says, based on fundamentals (like M2 and the rapidly dropping M3)....and then there is the froth that gets whipped up during the public speculation phase...akin to the froth of every bubble since the Lydian Kings.

After looking at the historical demand for gold I am thinking more like you now. a 3 or even 10 times revaluation is possible, but 50? No way.

Costata, here is another way to approximate the TRUE gold value. Let's forget official money supply numbers for now. There is very good data available for the broad money supply that goes back over 100 years. That's the DOW 30. A stock market index is an extremely good proxy for broad money as surplus money will always find it's way there eventually.

Around 1900 gold was worth 19$ (http://www.nma.org/pdf/gold/his_gold_prices.pdf) and the Dow 30 was worth about 50. So if we bring that forward to today gold would have risen 200 times to 3800. But since the amount of gold in the world today is 5 times more (http://www.goldsheetlinks.com/production2.htm) a price of 3800/5 would apply. That's 760$.

Don't get me wrong Costata. I am not trolling. But I think if we want to be honest with ourselves we need to look at the elephant in the room nobody wants to see.

We all want gold to go to the moon but we need to look at this from every angle if we are to be sure of the outcome.

I have done 2 calculations now using different data from times long past when gold was money, and both give me values in the ball park of where we are now.

I have also given reasons why gold does not need to represent all wealth. (Gold will only ever be base money - not all wealth). And nobody has given me na satisfactory rebuke.

Absolutely true. It is generally discussed here as the premium store of value within a heirarchy of value that includes other lesser stores of value.

Fiat currency is a debt but the issue is total debt not the money supply alone.

In order to provide the debt settlement function gold has to rise to a price that will allow it to offset most of the existing debt in the system or the debt has to be written off. No sign of any willingness to do the latter.

I have no price target for gold or firm opinion on the future price of gold under Freegold except for the following:

1. It will be a multiple of todays price in most, if not all, currencies based on the balance of probability analysis provided by FOFOA.

2. Anyone holding US$ can expect the price of gold in that currency to soar in a hyper-inflationary currency crisis at some point due to the cumulative actions, over the past 30 years, of the US Govt and the Federal Reserve.

There are 2 charts there. One is production and the other is the cumulative total. I have also read elsewhere that all gold in the world is about 160,000 tonnes so the chart agrees with this number.

Yes I did consider there are 5 times more people today but I decided it was irrelevant to the calculation as those people are already reflected in the level of the DOW. In the end the gold would reflect total wealth and the Dow is already a proxy for that.

If you have a way to work the number of people into the calculation please let me know :)

"In order to provide the debt settlement function gold has to rise to a price that will allow it to offset most of the existing debt in the system or the debt has to be written off. No sign of any willingness to do the latter."

This is where I get lost. This debt is already reflected in the value of one dollar vs gold at today's price. If there is a mountain nominal debt out there which has effectively increased broad money, that money is already out there buying gold, and that is why it's rising.

Mike, i don't underestand your comparison to DOW, because you point to stocks' value and you do not count with number of stocks. Ocean of new shares was issued in last 110 years which i can not find in your anecdote.

Yes, that's the point. The stock market will always represent a roughly constant share of total wealth, give or take a few percent. Therefore it is a very good indicator of total money supply. The number of stocks doesn't really matter. It's the fact that it represents a constant share of all broad money out there. I posted another way to work out a fair gold price using base money in the "refelection" article comments section. However, I think using the Dow is superior because it captures the effect of all money, not just the money base.

Many of your assertions are simply factually wrong and/or illogical. Fpor example the total debt doesn't show up in broad money. The DOW isn't representative of global debt. What about the rest of the world?

stibot,

You are dead right in your critique of miked's analysis. Take the population issue: perhaps miked will listen to the facts from someone else.

I am listening. I am not here to prove something. Rather I want to be proven wrong.

Are you sure about debt not showing up in broad money Costata? The best measure, surely of all money (real and imaginary) is asset prices. I am not talking about official definitions of broad money now. I am talking about all money in the world. Debt is reflected in these asset prices. Or if not why did we just have a stock market bubble and then a housing bubble, and now a commodities bubble?

If I could collect data on all stock markets' market cap, all property values and all assets not owned by companies in 1900 then there would be a better proxy than the DJ30. But I can't, so the DJ30 is a quick and dirty approximation.

Given that the stock market is always going to maintain a roughly equal share of all assets out there, then that's the best proxy I can think of for all money.

In my mind it's not the number of shares that matters, it's the total wealth they represent that matters. The total amount of wealth drives the demand side of supply/demand. Let's say (a figure I pull out of the air) the stock market today represents 30% of all wealth. If it represented 30% back in 1900 too then we have a proxy for wealth right? Just multiply it by 3.33 and you have all wealth, then and now. As long as that proportion is roughly constant it doesn't matter exactly what the number is.

Whereas the amount of gold out there obviously does matter to the supply/demand equation. More gold means more supply.

Costata, I’m glad you enjoyed my trade story. In the two years or about, the volatility in the price of gold has been tuff to deal with in my situation. The spring of 2008 was my first trade. The price of gold was around $1000, by November of that year the price per oz. was down $300 to around $700 and now gold is around $1200 + $500. The price swings make it difficult to price my labor in gold. If I do a similar job priced in gold with fluctuations like this a referral customer will question the price so I go for my normal rates +25%. As you can see my circumstance makes me wish for a lower price for gold, kind of like TPTB gold suppression cartel only I’m not a banker I’m a wood worker.I find it sad to see most people oblivious to the fact that the dollar is so unstable when moored to gold.

Stibot, I agree 100% the exploding world population makes gold more rare.

Miked “If you have a way to work the number of people into the calculation please let me know :)”

How about the % of new mind gold 2000t of total world gold 160000t per year compared to the % of yearly population increase? This will at least tell you if the world gold per capita is increasing or decreeing.

Now I’m not a stock market maven, but if the paper is levered at 100 to 1 how can we trust it for calculations, and I’m not just talking gold I mean the whole ball of wax from oil to pork bellies.

"....Those who understand this(FDR's) blog know that our dollar's unprecedented, years-long bull market, against all other major currencies, has nothing to do with US economic strength. Rather it has everything to do with US economic weakness. There is no "flight to safety." There never is. What there IS is a collapse in lending from US consumer credit exhaustion, and that has drying up the US dollar supply since late 2007. The collapse of US cash supply is what spikes the value of surviving dollars.

Less bank-printed cash sloshing around to compete for assets, means prices will continue to fall, and the fractal indicates a massive spike in $ value looms in our immediate future. That means falling prices denominated in dollars and an acute spike in bank failures. Less US cash in circulation also means each surviving dollar will buy more foreign currency, sending the Euro and EU into a graveyard spin from which it will never recover (not in our lifetimes, nor our children).

The purple arrows, above, show a rough fractal equivalency. Will the EU collapse very soon? Yes. Is it the fault of the EU? Absolutely. They are fully linked to US economic activity due to a stagnant, predominantly socialist economy. But as the world tumbles into the abyss, it is important to understand that the economic driver of the EU's demise is a lack of US bank-printing/lending, eradicating US and thus world-wide liquidity.

Hold on. Sell assets for dollars while you still can (especially unload precious metals). Avoid large banks, especially Bank of America. Hoard US cash and treasuries..."

Imagine a small poker table, six guys playing poker. They empty their pockets of gold and put it in the kitty, then divide up the plastic poker chips to match the gold 1:1.

...

They continue this game with the winners returning the plastic chips to the losers each time. And the winners are the same, each time. And this game continues for 88 years. How many pads of paper did they go through keeping track of those IOUs? And if they were to settle up in gold now, where gold's value was once equal to the plastic chips 1:1, but now they must incorporate the IOUs, what would be gold's new value relative to the chips?

...

The way it works is it revalues that gold so that upon uncontrolled collapse, the winners are somewhat fairly paid and the losers still have enough gold to keep on playing.

So what about all those people sitting around having some gold and only watching the game? They just do nothing and their wealth is increasing, because those six are playing? As long as those six are playing and some of them are loosing and falling into debt those sitting around are getting richer?

Is population vs gold relevant if the demand per person varies both by country and culturally? Even in France I cannot see so many people rushing around for gold, they are more likely to rush around for food. Again, I think there is a cultural difference attached to gold...clearly in China they are pretty mad for it.

Interestingly, gold could rise vs all western currencies to weaken them vs the Yuan. It would take a huge rise to alter trade flow however.

"I am listening. I am not here to prove something. Rather I want to be proven wrong."

If you are sincere take responsibility for your own research and study the A/FOA and FOFOA archives.

"Are you sure about (all) debt not showing up in broad money Costata?" (My edit)

Yep.

"I am talking about all money in the world. Debt is reflected in these asset prices."

(Are assets reflected in these debt prices? I'm not being flippant.)

Nope. The 600 trillion dollars (or 1200+ trillion dollars depending on whose figures you believe) in outstanding derivatives represents a contingent liability for both parties. It is a zero sum game ie. gambling.

Precisely half these bets must lose at which time they become a debt to the counterparty. Who owes what to whom will not nett out to a 1:1 ratio. The losers and winners in the same portfolio will cancel each other out. Counterparties who have winning and losing bets with each other could cancel them.

Alternatively if you have the influence to bring your opponent down (think AIG, Bear Sterns & Lehmann) you could bury your losing bets and collect on all your winning bets provided you can find someone to provide the money. Hello Uncle Sam!!

"The total amount of wealth drives the demand side of supply/demand."

Nope. In this debt saturated era we are emerging from (hopefully) around 70% of US GDP is consumption and a significant proportion of that has been funded by debt.

"How about the % of new mind gold 2000t of total world gold 160000t per year compared to the % of yearly population increase? This will at least tell you if the world gold per capita is increasing or decreeing."

My question is does the population matter at all? If there are 2 guys with 1$ each wanting to buy gold, what is the difference to one guy with 2$ wanting the same amount of gold? What matters here is there is 2$ chasing the gold. If the amount of gold on offer suddenly doubled overnight because a big gold nugget fell from outer space - of course that would reduce the price.

If we consider total wealth then I really don't think the number of people who own it matters that much. Maybe I am wrong :)

Now I’m not a stock market maven, but if the paper is levered at 100 to 1 how can we trust it for calculations, and I’m not just talking gold I mean the whole ball of wax from oil to pork bellies.

I think the leverage is irrelevant. Money finds a home in assets. It has pushed all assets to fantasy levels because there was too much money with nowhere else to go. These fantasy levels reflect the value of one dollar in your pocket (not much) and they are reflected in the price of an ounce of gold today.

Dow priced in ounces of gold is pretty much what it was 100 years ago. That says to me it's a fair price.

Now whether it will stay at a fair price is another question. I would wager (and I have done) that gold will rise significantly because of a panic. But any panic price will not be sustained. Eventually long run equilibrium must be restored.

Costata, if your argument is that at some point there will be a default on derivative contracts and the government would print the amount of dollars required to make whole the damaged parties, then the net effect on the money supply would be zero, as newly printed dollars would match those which had just gone up in smoke.

Until there is a real default which is unmatched by newly printed money there would be no effect on asset prices (because the effect on wealth is as you say, zero sum).

It is NOT about ratios, population, Dow or money supply, it is about the DEBT.The US alone has between 75 and 112 Trillion of unfunded government liabilities (medicare, pensions, social security, etc.) plus national debt, plus, plus, plus. This is debt that can NEVER be repaid. The US must borrow or print just to pay the interest. Most of the western world is in the same debt ridden position.

Please take the time to read the archives so that we can move on. FOFOA (bless him) cannot spoon-feed every new reader. As much as he wishes to help and inform others his time is very valuable to himself and the others who read this blog.Please just remember the quote "It's the Debt, Stupid".No impairment intended to you personally.

You said: “My question is does the population matter at all? If there are 2 guys with 1$ each wanting to buy gold, what is the difference to one guy with 2$ wanting the same amount of gold?

That makes sense, but lets say instead of $s the two guys use gold, and instead wanting to buy gold, they want to buy food with gold, if the $ collapses with all world currencies that will be the scenario. People will need something to trade for the necessities in life “in my case labor” but to store your wealth, gold works fine because you can’t print up more and it keeps the exchangers honest. Sorry for getting off track. Ok so the two guys have 160,000 tonns that’s more than enough gold for the two guys, an apple would probably go for a tonn. Instead of the two guys let’s say 6,824,300,000 guys now had to compete for that gold and break it down into units of trade, that would change the value of that unit. I also agree with Devils Avocado in that different areas will value a unit accordingly. One aria may be abundant in food while another area is a desert. Probably why the Saudi’s prize gold so highly.

Also: Dow priced in ounces of gold is pretty much what it was 100 years ago. That says to me it's a fair price.

Unfunded liabilities are just that. Unfunded. Therefore there is no interest to pay on those debts - yet.

Additionally the figures you quote are arbitrary. How many years of Medicare are you talking about? 10? 20? 50? Sure, we can work out the US budget for the next 50 years and call it all unfunded. All future liabilities are unfunded. That's what taxes are for ... in the year the expenses are incurred.

The portion of the US government debt incurring interest payments is about 12 trillion dollars or just under a year's GDP.

Now I am not denying that the debts won't be paid. I am sure they will not. But repeating the figures bandied about on Zerohedge and other alarmist websites without context doesn't help me understand what you are trying to say.

"it's the debt stupid" says nothing to me. Sorry.

I have read a large portion of the archives and I haven't found any numerical analysis there apart from "gold will slice though 10000$ like butter and stop trading. You will never know its price". I hear that all the time every time my banker tries to sell me a new financial instrument :)

Surely I am entitled to my opinion? Or should I shut up now so that you can "move on" the preaching to the converted can continue?

Carpenter - yes I think you are absolutely right. In the short term in a panic scenario the number of people does matter. That is why I own a lot of gold. I believe there will be a panic and a rush to gold will result in a huge price.

What I am debating is whether a freegold price in the stratosphere could be maintained in the long term. Based on the supply and demand characteristics from a time long ago, I doubt it.

Miked; thanks for the graphs very informative. I did notice that the gold production graph ends year 2000 when world gold production starts to slow. Other than that the two graphs are hauntingly similar. Thanks again.

Gold is the same gold as in 1900, however, Dow has changed considerably. Nonetheless, I like this ratio as it answers the question - whether money is flowing into financial assets or into tangible assets. I like to look its monthly chart with 1 and 4 year moving averages.

What I don't understand is that why would you discount 25% to get paid in gold. Saudis did this for obvious reason - they operate with large amounts which are hard to get. But why can't you just buy the gold and keep the discount? No suply shortage for liliputians yet.

Hi Kewl, it’s just my way of kicking over the monopoly board.Actually I came up with the price according to materials and labor plus my normal multiplier than add 25% that price is the cash price. In fact it’s a surcharge. I like the 25% because the LBMA settles gold delivery contracts with a technical default cash + 25%.I kinda live in my own gold standard microcosm. Also in the past when converting dollars to gold paperwork has to be filed with the government “the patriot act” and this my friend is a paper trail I would like to avoid.

And in the videoclip she says the gold for paper machine will soon be accepting credit cards as well! Brilliant!!!! Book me a seat!!

@miked

IMO it won't stay in the strat forever, as the thing you are using to evalute the strat against ($), will have to change fundementally for it to reach the strat in the first place (or will change very soon after such an event)...You need your gold for AFTER the price goes into the strat and the fiat system then collapses and then chaotically reinvented itself....THEN you use your gold, and it will have, low and behold, PRESERVED YOUR WEALTH (for you to join in with the new order wealthy sat on their lard drinking champers in the sun:)

I thought that this one stage will come much later but I see it is possible it could be sooner :o) and exactly as predicted. Theory is one thing but when prediction materializes and you see it on your own eyes then it feels different.Since there are not some items (like bullions of certain weight) in shops and more of those dissapear it is harder to valuate based on the price. I just imagined that after next big EU state downgraded and more people obtaining gold (now more of them know "how to") more of it will be sold out. That fact when all items will be out from shelves and price still not reflecting supply-demand is ridiculous and funny. And we live in what century?I can not deside if this front seat surreal movie is tragicomedy, sci-fi or what.

I believe FOFOA has addressed many of your queries previously in this post... Fair Value Gold

It seems to me that Reflection is the best starting point to the thoughts of FOFOA, but it is simply the bare framework upon which to assemble the entire picture. There is not a lot that he has not covered in detail already, in numerous other posts. In Reflection FOFOA even lists posts he recommends to fill in the details.

I would like to echo the sentiment of Greyfox from an above comment -"Please take the time to read the archives so that we can move on. FOFOA (bless him) cannot spoon-feed every new reader. As much as he wishes to help and inform others his time is very valuable to himself and the others who read this blog.Please just remember the quote "It's the Debt, Stupid".No impairment intended to you personally."

US currency and Treasuries are an IOU - a promise to pay you another IOU (currency) in the future.

The author's advice might make sense if the next 30 years are likely to be the same as the past 30 years.

Sometimes there are turning points in history. Paradigm shifts. Phase transitions where something old and familiar passes away and something new emerges.

The $IMFS has reached a crucial mathematical juncture. We are either at, near, or beyond, a point where there is so much debt that it cannot be repaid.

At the start of the so-called GFC this problem emerged with US sub-prime borrowers who could not support their debts. This exposed the banking system as being insolvent. The banksters attempted to shift the bad debts onto Governments. They are continuing their efforts to do this as well as stealing from their customers to try to generate enough profit to become solvent again.

Now it is becoming apparent that countries, like Greece, have so much debt that they cannot repay their debts either (by taxing their citizens or selling their national assets).

What is the solution?

(i) Write off the debts to a level that can be repaid over time.

This would mean a loss for the lenders ie. bankers and financiers. Their response has been to refuse to accept this and to use lobbyists to persuade Govt to bail them out.

(ii) Issue enough fiat currency to repay the debts.

This will satisfy the debts on paper but what value is offered? Will one fiat currency unit out of a pool of 1 Billion currency units have the same purchasing power as 1 currency unit out of a pool of 1 Million currency units?

(iii) Recapitalize the system.

In other words replace the debt with equity AKA capital. To accomplish this would require a type of money or an asset that is trustworthy. The current fiat currency IOU system has proven that it cannot be trusted. No other assets are available because they have been pledged already against the existing debts.

What is left to fill this role?

Some parties think that the IMF currency known as SDR can do this but it is also a fiat currency IOU based on other fiat currency IOUs pledged by the same Governments who betrayed the trust of their citizens by issuing too many fiat currency IOUs.

Other parties, me included, think that physical gold will solve this problem because it is trustworthy. It cannot be printed. No Govt can issue more gold than exists.

It is a workable solution but to solve this problem gold needs to be revalued to an amount equal to the debt it is replacing. This may lead to a much higher price for gold in many currencies.

What is the alternative?

More debt to "repay" existing debt?

Issuing more currency with ever decreasing purchasing power to settle existing debt?

golden tube, that is a deflationary spiral which he is describing, with bank created money drying up due to foreclosures so there is less money in the system and then assets get cheaper. That would be good advice in the 1930's but now the debt is near the breaking point and the viability of the currency is at risk. This deflation results in less tax revenue to the government and it goes even deeper into debt. The only way to pay off its debt is to print more money, and engage in quantitative easing.

So right now even though prices seem stable, that is because the US is having both deflation and inflation, deflation from a contraction of the M3 money supply from bank money, but this is being offset by the government stimulus printing of M0. Eventually interest rates have to rise and then the whole thing collapses and the government will destroy the currency within a few weeks of that happening through hyperinflation. Of course they all know this will happen, they are just stalling for as long as possible. But they can't do it much longer. The end is near, it's inevitable.

Someone correct me if my analysis is not correct, I am learning this all too.

you mention this...It is a workable solution but to solve this problem gold needs to be revalued to an amount equal to the debt it is replacing. This may lead to a much higher price for gold in many currencies.

just using the formula to calculate the gold price for the US using est 14 trillion to 8000 tonnes gives us roughly 50k.

if you do the same calculation for canada with 500billion national debt to 3.4 tonnes it comes out to almost 5 million.

Well I'm Canadian so I hope so! We only have 3.4 tonnes? That's ridiculous!

Actually, I am wondering what capital gains tax I will need to pay. Unfortunately for a lot of my purchase (about half) it was of a size that got reported to the government ($3000 limit). This could work out to a huge tax if gold goes through the roof. If it doesn't go that high the gains could be offset by losses in other investments.

Maybe if I just gave some away to friends needing bailing out or a charity I would like to see happen, that would take care of a lot of the taxes.

Please take the time to read the archives so that we can move on. FOFOA (bless him) cannot spoon-feed every new reader. As much as he wishes to help and inform others his time is very valuable to himself and the others who read this blog.Please just remember the quote "It's the Debt, Stupid".No impairment intended to you personally.

So don't be stupid, let's pass so we can move on. Move where? What is the next lesson? What is so important theme that you need to skip fundamentals not explained yet?

Mike is not refuting dollar will fall against gold. Mike is not refuting gold will gain also in real terms. He provides arguments against target price of 50,000 USD in real terms, price revealed in sacred Dead Sea Scrolls.

Around 1900 gold was worth 19$ (http://www.nma.org/pdf/gold/his_gold_prices.pdf) and the Dow 30 was worth about 50. So if we bring that forward to today gold would have risen 200 times to 3800. But since the amount of gold in the world today is 5 times more (http://www.goldsheetlinks.com/production2.htm) a price of 3800/5 would apply. That's 760$.

You are correct that the DJIA has risen 200 times.

Gold annual production has risen 5 times, but that does not say too much about the total gold above ground. And even that latter would not tell you much about the amount of paper gold.

Apart from that you might wonder if the the DOW30 is still the best measure, as many other companies have sprouted since 1900 (especially on a world wide scale).

Thanks for your responsesOk here is what I believeI think we will have price deflation in the things we don’t need but “want”, because most people “buy” those things on “credit” ( which of course is debt )Which means that the US Dollar/Euro/Pound denominated “price” will start to slide downwards, I think this could be even the same for gold initially, as in you will need to exchange less of them for any given item. I’m not sure about real estate, some high-end real estate will go up as the uber-rich will pour money ( as in get out of their fiat) into bricks & motor, same with high-end art etc. Most real estate will go down in price as most people have to “borrow” to buy. And no one will be lending

My reasoning behind this is the same as FDRAlloveragain i.e. ..”What there IS is a collapse in lending from US consumer credit exhaustion, and that has drying up the US dollar supply since late 2007”. The bailout banks have been given funds by the taxpayer and they are not lending, they are depositing those funds with the Fed and more importantly, consumers are unwilling to borrow. As 97% of all “money” is borrowed into existence so no borrowers = no increase.

I think we will have price inflation in things we need, i.e. Food, energy, heating & other oil-based essentials

I think paper price of Gold (as will Stocks) will price downwards initially as funds, investors etc do the big sell off as most don’t understand Gold is store of wealth and see only gold as a commodity/trading item/or for jewelry use etc. I think short-term price could easily reach $500 to $700 range. THEN as hyperinflation of the currency takes hold then the “price” will rise & rise & rise very quickly as the sheeple catch on to what’s happening !!!, finally there will be no paper price of gold ( as denominated in current fiat currencies) as there would be no seller of physical gold for paper promises.

Physical gold/silver at that point will only trade for barter, its value in purchasing power way higher than today.

Only when a new currency is issued and people BELIEVE and have faith in the new fiat will gold start to reverse.

"It has been estimated that all the gold mined by the end of 2009 totaled 165,000 tonnes.[2] At a price of US$1000/oz., exceeded in 2008 and 2009, one tonne of gold has a value of approx. US$32.15 million. The total value of all gold ever mined would exceed US$5 trillion at that valuation"

This tallies exactly with the figures and the charts I posted.

I don't want to bang my own drum. If someone else wants to post up their own calculation, let's see it and we can discuss.

By the way Costata the comment above from Mike about Canadian gold reserves was not from me :)

You said: "(i) Write off the debts to a level that can be repaid over time.

This would mean a loss for the lenders ie. bankers and financiers. Their response has been to refuse to accept this and to use lobbyists to persuade Govt to bail them out.

(ii) Issue enough fiat currency to repay the debts.

This will satisfy the debts on paper but what value is offered? Will one fiat currency unit out of a pool of 1 Billion currency units have the same purchasing power as 1 currency unit out of a pool of 1 Million currency units?

(iii) Recapitalize the system.

In other words replace the debt with equity AKA capital. To accomplish this would require a type of money or an asset that is trustworthy. The current fiat currency IOU system has proven that it cannot be trusted. No other assets are available because they have been pledged already against the existing debts."

I don't really see the difference between ii) and iii).

Surely in option iii) the debt holders lose their shirts anyway (unless they are lucky enough to own a few tonnes of gold) so the result is essentially the same as going through a hyperinflation (option ii) ) and then asserting hard money afterward?

I have been studying Another/FOA for over 18 Months as well as following FOFOA's blog for about 15 months. and believe me i geddit & i thank FOFOA for the clarity....

i am all out of "paper"! and have been a while now

recently, i have got my elderly parents nearly all out as well!

i also like FDRAlloveragain, been watching his blog/postings since he was on Marketwatch over 2 years now

Generally re FDR i agree with 100% of what he writes except i cant believe he says sell gold UNLESS he means sell gold now ($1200 ish) and buy back on the one last major drop any of us ever see in our lifetime

he is as i understand a full time trader and has trader mentality, so therefore sell high & buy low ( 1 last time) is a play allbeit a dangerous one.

me, i like Gold to be very still

A great book to read (it twice) is "paper Money" by Adam Smith, he explains the Gold/Oil/Paper constuct better than most.

Let's have a World, where live 3 people (3 countries if you like): A, B, C. Each of them has 5 oz and 5 cows.

1. Now A buys from B 4 cows, pays 4 ozs and eats the cows.2. B grows another 4 cows.3. A having no cow and last coin, borrows 4 oz from B (writing him IOU) and using those 4 oz he buys again another 4 cows.4. It goes for another 80 years so- A has 1 oz of gold still and owes (let's say) 80 ozs to B,- B has 9 ozs of gold + 80 IOU for 80 ozs,- C has 5 ozs of gold.

The debt of 80 ozs will be somehow paid by half of oz, therefore 1 oz is revalued to 160 cows.

So now gold is revalued using debt level achieved and B is happy that C can go to him and buy 160 cows using single coin.

Big sell off is unrealistic.- Debt destruction- There are problems with all fiat currencies- CBs are buying- Bonds, equities, money markets more risky- Value of gold as investment rose internationally- East buying- Change in mentality into savers=> There are already quite few with deep pockets who will use bug sell off as great opportunity. => Lets face it - Game has changed. => Irreversible.Valuation based on DJIA? There are too many parameters and fundamentals changed dramatically.

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